I use this blog to gather information and thoughts about invention and innovation, the subjects I've been teaching at Stanford University Continuing Studies Program since 2005.
The current course is Principles of Invention and Innovation (Summer '17).
Our book "Scalable Innovation" is now available on Amazon http://www.amazon.com/Scalable-Innovation-Inventors-Entrepreneurs-Professionals/dp/1466590971/

Friday, July 08, 2011

Business model innovation: scutage.

At around 1100, English king Henry II conducted a number of financial and administrative reforms, which allowed him to create a well-trained professional army and conquer territories far beyond the British Isles. Here's how it was implemented:

Rather than relying on the customary military services of forty days owed him annually by his tenants-in-chief with their retainers, he began insisting that these feudal services should be commuted into a cash payment or ‘scutage’ (from the Latin, ‘scutum’, a shield), a process as welcome to the barons as to Henry’s finances. With the proceeds Henry was thus able to build up a more reliable and more mobile, permanent professional army of mercenaries, or ‘soldiers’ as they became known thereafter, from the ‘solidus’ or king’s shilling that they earned.

History of Money, by Glyn Davies. p. 142.

What are the advantages of the new vs the old military service model?

The first advantage would be a greater degree of specialization, which is a common attribute of almost any successful business model innovation. With the introduction of scutage, the barons could specialize in making money, e.g. by improving agriculture, crafts, and trade within their domains, while the king could specialize in soldier selection, training, and military strategy.

Another one, would be a greater control over resources. The barons could now control the timing and scope of labor use, which in the old model could've been taken away from them at arbitrary times, e.g. during harvest gathering or seasonal forest clearing for agricultural needs. At the same time, the king gained direct control over army mobilization time, which in the old model depended on the willingness and ability of barons to provide requested manpower according to the kings needs.

Finally, scoutage led to growth of a new class of professionals - mercenaries whose only purpose in life was warfare.

The structure of this business innovation is similar to the transition undergone by the computer industry in the 1970-80s: from IBM enterprise model, where software and hardware were provided as one package with a series of periodic custom updates, to PC-based shrink-wrap software sales, a model Microsoft eventually rode to world dominance in 1980-90s. In both cases we saw a replacement of obligation-specific (in kind) transactions with obligation-generic (money) ones. As a consequence, a new class of specialists developed, mercenaries in the beginning 12th century, pure software firms in the end of the 20th century.